QE2 Ending, Mortgage Rates May Rise
The national average of fixed mortgage rates stayed relatively unchanged last month according to Freddie Mac. The national average of the 30-year fixed rose just slightly to 4.51 percent and the 15-year fixed remained at 3.69 percent (compare to Central Coast Lending's Rates: 4.250 percent for the 30-year and 3.375 for the 15-year). We have hovered at near yearly lows, but this could come to an end now that QE2 is coming to an end.
QE2 is the Federal Reserve's "quantitative easing" program, in which the Fed purchased $600 billion in long-term US Treasury bonds to bring down long-term interest rates. The program injected cash into the economy to increase the money supply. The banks could then turn around and loan the extra money out, thus "easing" tight standards and lowering interest rates.(For a brief on QE2, see: link)
Now, with the program nearing an end, we could see interest rates increase over the summer with less of a money supply. On the other hand, it is unclear just how much banks used the extra money to fund loans as banks have also been sitting on large cash reserves. The housing market continues to struggle and with demand remaining low, we may continue to see similar rates (and flush with money supply from the program, banks afford this). Another viewpoint is that with the government out of the way, we will see an increased amount of instability in the market that could attract investors to the Treasury bonds. This "flight to safety" principle, suggests that the US debt is actually one of the safest investments. As a result, interest rates could actually decline, as demand for Treasury bond could increase.
Stay tuned for more.
For now, Central Coast Lending's rates remain low: 30 Year Fixed 4.250% (4.416 APR) 15 Year Fixed 3.375% (3.685% APR) 5 Year ARM 2.375% (2.541% APR) 30 Year Jumbo 4.375% (4.499% APR).
